UPDATE 4-Apple shares fall on reports of cuts to iPhone parts orders

January 14, 2013|Reuters

(Adds comment from Sharp, Japan Display)

Jan 14 (Reuters) - Shares in Apple Inc dipped below$500 for the first time in almost one year after reports it isslashing orders for screens and other components from its Asiansupplier as intensifying competition erodes demand for itslatest iPhone.

Japan's Nikkei reported on Monday that the world's largesttechnology corporation began sharply reducing buying of liquidcrystal displays about a month ago from suppliers like JapanDisplay Inc and Sharp Corp.

Sharp's stock dipped as much as 7 percent in early tradingon Tuesday and shares in South Korean Apple suppliers such as LGDisplay also fell.

"We can't comment on individual clients," said MiyukiNakayama, a spokeswoman for Sharp, which builds iPhone 5 screensat its Kameyama plant in central Japan. Japan Display, astate-run business formed from the small LCD units of Sony Corp, Toshiba Corp and Hitachi Ltd alsodeclined to discuss its orders.

The Nikkei report, later matched by the Wall Street Journal,comes as hard-charging rivals like Samsung Electronics, which makes phones based on Google Inc's popularAndroid software, continue to expand market share globally.

Apple stock slid more than 4 percent to an intraday low of$498.51 -- a level not seen since Feb. 16, 2012 -- beforebouncing back to trade just above $500 at midday. The news alsohurt shares of suppliers such as Cirrus Logic Inc,which dived 9 percent.

Some analysts argued that Apple and its manufacturingpartners had struggled with quality issues that might havecurtailed production times.

Dogged by low production yields, Sharp last year fell behindschedule for iPhone 5 screen shipments in the run-up to thephone's launch in September. Sharp has yet to acknowledge thatApple is a customer.

"Our checks with supply chain contacts close to thesituation identified a very different cause: a slower ramp inthe manufacturing of iPhones and iPads (reflecting some qualitycontrol issues) and insufficient production lines," said JoAnneFeeney of Longbow Research.

"Rather than ordering more components and having inventorybuild up further, Apple put component suppliers on notice tohold off, for the time being, on further shipments until itexpanded its production lines - which it plans to complete bythe end of the quarter."

By some estimates, the holiday quarter may have been theworst for U.S. retailers since the 2008 financial crisis, withsales growth far below expectations. Other data yields a moremixed picture of holiday season demand.

Apple was not immediately available for comment. No one atSharp was immediately available to comment on Monday - anational holiday in Japan - and parts suppliers to Apple inTaiwan declined to comment.

CUTBACKS

Apple has asked Japan Display, Sharp and LG Display Co Ltd to roughly halve supplies of LCD panels from aninitial plan for about 65 million screens in January-March, theNikkei cited people familiar with the situation as saying.

The move, if confirmed, would tally with analysts sayingthat sales of the new iPhone 5, which was released in September,have not been as strong as anticipated.

Apple has lost ground gradually to South Korean rivalSamsung, as well as smaller, fast-growing rivals such as China'sHuawei Technologies Co Ltd and ZTE Corp.

Samsung overtook Apple in 2012 to become the world's biggestseller of smartphones, helped in part by the popularity of itsGalaxy Note II phone-cum-tablet and a vastly wider range of low-to high-end devices that appeal to a broad swath of consumers.Apple rolled out a single new smartphone last year.

Apple also cut its orders for memory chips for its newiPhone from its main supplier and competitor Samsung, Reutersreported in September, quoting sources with direct knowledge ofthe matter.

The company has been cutting back its orders from Samsung asit seeks to diversify its memory chip supply lines.

Samsung said on Monday that global sales of its flagshipGalaxy S smartphones had topped 100 million since the firstmodel was launched in May 2010. The Galaxy S3, launched lastMay, sold more than 40 million in seven months.

The Galaxy S IV is expected within months and may sport anunbreakable screen, full high-definition quality resolution of440 pixels per inch, and a more powerful processor.

It's expected to increase its smartphone sales by more thana third this year and widen its lead over Apple, according toresearcher Strategy Analytics. It forecast Samsung will sell 290million smartphones in 2013 versus iPhone sales of 180 million.

Kim Sung-in, an analyst at Kiwoom Securities in Seoul, seesSamsung shipping 320 million smartphones this year and doublingsales of its tablets to 32 million.